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Judge hears debate over education tax credits

DOVER - A courtroom full of lawyers debated the new Education Tax Credit law for three hours in Strafford County Superior Court on Friday.

Justice John Lewis was an active and engaged part of the discussion, helping the attorneys filter through hundreds of pages of briefs, motions and documentation to the key issues of the argument.

The top issue: whether the law is constitutional. Article 83 of New Hampshire's constitution states ". no money raised by taxation shall ever be granted or applied for the use of the schools of institutions of any religious sect or denomination."

The new law, passed in June 2012, allows businesses to receive tax credits against business taxes owed equal to 85 percent of amounts they donate to state designated "scholarship organizations."

Scholarship organizations may then award scholarships up to $2,500 to primary and secondary school students to attend non-public schools, as well as public schools outside of their home district or to defray costs of home schooling.

In January, the New Hampshire Civil Liberties Union, the American Civil Liberties Union and Americans United For Separation of Church and State filed suit against the state arguing that the Education Tax Credit Program is unconstitutional because it could divert money from state coffers to religious institutions.

The state argued that the way the system is set up, money never comes to the government; therefore, it should not be viewed as public funds.

"This program uses the tax system to deliver funding for the program. If there was no business profits tax, this program could not exist. The only way we can run this program is if a business owes the tax and chooses to divert some of the tax to this program," Alex Luchenitser, associate legal director of Americans United For Separation of Church and State, argued for the plaintiffs.

Richard Head, with the state Attorney General's Office, argued for the state that because the tax is retained by the business and never paid to the state, it should not be considered public money.

"What we have in the law before you is a private business making a decision it is going to donate money to a scholarship organization. There is no governmental involvement, except we will give you a tax credit for that decision," Head said.

He did concede upon further questioning from Lewis that if the businesses chose not to make the contribution, the money would go to the state.

Luchenitser also argued that the scholarship organizations could potentially discriminate by limiting scholarships to students planning to attend certain institutions, including religious ones.

Head said whether or not the funds are deemed public, a scholarship organization still cannot discriminate under state and federal law.

Lewis established early on that there was no dispute on either side that some money from the program would go to religious schools.

Attorney Robert Brooks, representing a number of religious schools who recently filed an amicus brief in the case, argued that the law cannot be severed to exempt religious schools without violating equal protection and free exercise laws.

"We do not believe that you can pick and choose among the private schools," Brooks said.

They have also argued the eight plaintiffs named in the case have no standing because they have suffered no injury, and their interests have not been harmed in any way.

Lewis took the case under advisement.

Both sides said they were impressed with Lewis' knowledge of the case and the questions presented.

Bill Duncan, a New Castle taxpayer and business owner and lead plaintiff in the case, said he thinks it will all come down to whether Lewis deems the funds are raised by taxation or not.

"I think we made the case strongly that it is funds raised by taxation, so the afternoon did flesh out the arguments we made in the briefs in a very useful way, but it still comes back to Article 83 and whether it's public funds," Duncan said.

The state argued that on its face, the law is neutral and simply increases educational choice for New Hampshire families.

Duncan said no matter who wins this case, it will likely be appealed to the New Hampshire Supreme Court.